Houston based energy services giant Baker Hughes reported stronger than expected first quarter earnings on Wednesday before the market open. BKR reported a a net profit of $576 million compared to a $72 million return for the same quarter of 2022 and a $182 million net profit in the previous quarter. Revenues were $5.7 billion for the first quarter of 2023, up 18% year-on-year. Orders were $7.6 billion were up 12% year-on-year in Q1. Growth was strongest in its liquefied natural gas (LNG) and new energies business segment.
Baker Hughes: $BKR Reported Before Open Wednesday
Baker Hughes Q1 2023 Earnings
- Net income of $576 million compared to a $72 million return for the same quarter of 2022 and a $182 million net profit in the previous quarter.
- On an adjusted basis, Baker Hughes earned was $289 billion, up from $145 million on the year but down from $381 million the quarter before.
- Per-share basis, profit of 57 cents. Earnings, adjusted for one-time gains and costs, 28 cents per share. The average estimate of 10 analysts surveyed by Zacks Investment Research was for earnings of 26 cents per share.
- Revenue rose to $5.72 billion for the first quarter of 2023, up 18% year-on-year. Seven analysts surveyed by Zacks expected $5.51 billion.
- Orders of $7.6 billion for the quarter were up 12% year-on-year.
- Baker Hughes did not buyback any shares from shareholders this quarter, but it said it plans to resume buybacks later this year as volatility declines.
BKR: Stock Market Reaction
- $29.54 +0.36(1.23%)
- $29.54 +0.79(2.75%) YTD
- $29.54 -3.37 (10.24%) Over year
- $29.54 -4.17(12.37%) Over 5 years
- 52wk High $37.88
- 52wk Low $20.16
“While 2023 has already started off with some macro volatility, we remain optimistic on the outlook for energy services and Baker Hughes”
“Our diverse portfolio features long cycle and short cycle businesses that position us well to navigate any periods of variability that may occur across the energy sector,” he added.CEO, Lorenzo Simonelli on the release
- Baker Hughes booked almost $1.4 billion in liquefied natural gas, securing awards for Qatargas’ North Field South project expansion for 16 million tonnes per annum of additional capacity and Sempra Infrastructure’s Port Arthur LNG project for 13 million tpa of nameplate capacity.
- The company also won awards for smaller LNG projects with Wison and Black & Veatch.
“Another notable characteristic of this cycle is the continued shift towards the development of natural gas and LNG,” “increasingly recognizes the crucial role natural gas will play in the energy transition, serving as both a transition and destination fuel, and predicted that this pointed to a multi-decade growth opportunity.” said Simonelli.
Simonelli said the lower LNG prices from last year should be a net positive for the sector, as last year’s prices were unsustainably high, and the new prices will boost demand growth.
“We remain confident that we will see 65 million to 115 million tpa of LNG projects reach final investment decisions in 2023 and continue to see solid project activity in 2024 and 2025,” Simonelli said, and he expects 2024 to have a similar developments.
“And then it continues in 2025 and 2026, we also see a set of opportunities improving and with the potential for FID ranges between 30 million to 60 million tpa each year. So again, the market is very active at the moment, and we like the position that we have and helping our customers,” Simonelli said.
In new energies, Baker Hughes saw almost $300 million in New Energy orders, Simonelli said, which comes out to about 4% of total orders for the quarter. New Energy orders last year were around $400 million.
“We’ve stated previously that we believe that by the end of this decade, new energy orders could be in the range of $6 billion to $7 billion,” Simonelli said.
Simonelli said in part the Inflation Reduction is pushing growth here, he envisions new energy could make up around 10% of the company’s Gas Tech orders in the next three or four years
“Partnerships are critical to delivering the energy transition. So there’s no one company or technology that’s going to solve the problem. And partnerships like this that we have with HIF, we think are crucial to be able to demonstrate and showcase the technology,” Simonelli said.
Baker Hughes’ is providing equipment for Air Products’ blue hydrogen project in Edmonton to enable carbon capture on the facility. This quarter the company booked a project with HIF Global to develop technology for direct air capture.
Two New Segments, OFSE and IET (Announced in Q3)
CEO, Lorenzo Simonelli on the release
“Last month, we announced a restructuring and re-segmentation of the company into two reporting segments, OFSE (oil field services and equipment) and IET (industrial and energy technology). These changes are designed to sharpen our focus, improve operational execution and better position Baker Hughes to capitalize on the quickly changing energy markets.”
BKR is looking for the reorganization to improve operations and profitability and may yield more than $150 million in cost savings. The new structure was made official Oct. 1st, the first day of the fourth quarter.
Demand Destruction Fear
“With years of under investment now being amplified by recent geopolitical factors, global spare capacity for oil and gas has deteriorated and will likely require years of investment growth to meet forecasted future demand.” said Chief Executive Lorenzo Simonelli in a statement.
Simonelli offered a positive outlook for next year, saying: “Many of the key challenges should be behind us.” BKR anticipates double-digit revenue growth in its international oilfield services business in 2023 and modest growth in its North America business, driven largely by public firms.
The Ukraine invasion by Russia and the global supply crunch has hit customers but also the cost of materials for BKR. Baker Hughes has been negatively impacted in the second quarter by a $365 million charge from its Russian operations and supply chain inflation.
Western sanctions on Russia’s energy industry hit supplies. which disrupted operations and led to higher costs for chemicals. Its digital solutions unit was also again negatively impacted by supply chain problems related to semiconductors, boards and displays.
Baker Hughes Peer’s Earnings
General Electric Demerger
On June 26 2022 $GE announced it will divest its 62.5 percent stake in Baker Hughes in the next two or three years in a bid to simplify its structure and boost shareholder returns. GE acquired the Baker Hughes in July 2017, creating the second largest oilfield services provider by revenue.
Baker Hughes today announced will keep technology, capabilities and infrastructure obtained through the merger despite its breakup with GE.
“There are agreements in place to ensure there is a seamless separation. We’ll work with GE as they evaluate the timing and structure,” Simonelli said..
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